Friday, January 29, 2016

Oil led the way again on comments from Russian Energy
Minister of potential discussions by OPEC and other producers to lower supply.
The OPEC delegates later denied any meeting planned but crude prices remained a
tad higher, last seen around USD33/bbl. US equities were also led higher.
Benchmark indices spent the first half of the session

Weaker data affected the dollar more than equities.
DXY slipped to 98.50 by Thu close. That benefitted the rest of the majors,
aided also by better risk appetite. GBP touched a high of 1.44 before easing
off into Asia morning. Antipodes were higher as well with AUD and NZD last seen
at 0.7080 and 0.6480 as we write. EUR bounced to highs of 1.0960 before easing
off. USDJPY hovered around 118.90 as we write, unwilling to commit ahead of the
BOJ meeting.

Looking ahead, Asian equities could be cautiously
optimistic, underpinned by recent rally in the oil prices. Eyes are on US GDP
and PCE number. Recent speculations on possible actions from BOJ may lay the
pressure on the central bank to act. We anticipate promises but not deliveries
today. That should keep USDJPY supported on dips. The currency that benefits
the most is MYR, up 0.9% against the USD.

Currencies

G7 Currencies

DXY – Rising Wedge Formation Playing Out. USD was broadly softer overnight amid disappointing
durables goods report and pending home sales data. DXY was last seen at 98.51
levels. We had earlier cautioned that a rising wedge formation is
possibly in the making, and this is typically a bearish reversal. Daily
momentum and stochastics are indicating a mild bearish bias. Support at 98.85
(50 DMA, 50% fibo retracement of Dec high to low) has now been broken; next
support at 98.50 levels (38.2% fibo) before 98 levels (23.6% fibo). Week
remaining brings GDP Annualized QoQ (4Q A), Core PCE (4Q A), U. of Mich.
Sentiment on Fri.

EURUSD – Breaking Higher? EUR grinded higher amid broad weakness in the USD.
Pair was last seen around 1.0930 levels this morning. On technicals, we
continue to reiterate there is a triangle formation – horizontal trading
pattern. Directional bias is gradually shifting to mild upside bias as
indicated by daily momentum. Interim resistance at 1.0970 levels (100 DMA),
before 1.1060 (200 DMA). Near term support at 1.0850 (50 DMA). Day ahead brings
EC Jan CPI estimate (Fri).

GBPUSD – Watch the Break of 1.4350.GBP recovered back above
1.43-handle levels as 4Q GDP met expectations. We reiterate that daily momentum
has turned bullish bias; weekly stochastics is also showing early signs of
turning around from oversold levels. Pair was last seen at 1.4360. Resistance
is at 1.4350/60 levels (23.6% fibo and downward sloping trend-line resistance
from Dec to Jan) before 1.4520 (38.2% fibo). Break above 1.4350/60 could see
weak GBP-shorts (positions) getting flushed further. Support remains at 1.4080
(Jan lows).

USDJPY – Awaiting BOJ.USDJPY
is climbing higher towards the 119-levels at 118.88 this morning on increasing
speculation that the BOJ will move at its meeting later today on the back of a
larger-than-expected dip of 1.4% m/m (cons.: -0.3%) in Dec industrial
production retracing mildly this morning, core inflation still hovering flat at
0.1% y/y and household spending fell 4.4% y/y in Dec. However a BOJ move is not
our base scenario, nor is it consensus view. We do not think that the BOJ will
act at this point but is expected to do so in the near future. Presser by BOJ
Kuroda following the announcement will be closely watched for directional
clues. We expect the uncertainties of the BOJ’s next move to keep the USDJPY in
range. Daily charts are still showing bullish momentum, though weekly
technicals continue to exhibit bearish conditions. Should BOJ disappoint and
hold steady, we could see a retracement back towards support at around 117.77
(23.6% Fibo retracement of the Dec-Jan sell-off). In the off-chance that BOJ
adds to its easing measures, a knee-jerk jump in the pair is likely with the
topside capped by 119.77 (50% Fibo), though pair could settle back around
118.88 as market has priced additional easing.

NZDUSD – Short Squeeze. NZD was supported, tracking other risk proxies. But up
move pales in comparison to AUD as RBNZ explicit easing bias kept Kiwi bears
alive. On technicals, daily momentum and stochastics are turning mild bullish
bias which could suggest some short squeeze, possibly towards 0.6550 (38.2%
fibo retracement of Dec high to Jan low), 0.66 levels (100 DMA). We remain
better sellers on rally.Support at 0.6430 levels (lows in Nov and
Jan) before 0.6350 (Jan low).

AUDUSD – Upside Bias.AUD
touched a high of0.7129 before easing back to levels around 0.7080 as we write.
Bullish momentum is increasing and the 50-DMA beckons around 0.7150 ahead of
the next at 0.7210. Support is seen around 0.7020. 4Q PPI slowed to 0.3%q/q
from previous 0.9%. Year-on-year, PPI quickened to 1.9% from previous 1.7%.
Private sector credit accelerated to 0.5%m/m in Dec from previous 0.4%.

USDCAD –Heavy. USDCAD touched a low of 1.3948 before rebounding to
levels around 1.4000, dragged by usual suspects – crude. Support is seen at
1.3878 (50-DMA), ahead of the next at 1.3800. Resistance at 1.4141 (61.8%
Fibonacci retracement of Dec-Jan rebound) should deter aggressive bids. MACD
still flags increasingly bearish conditions for this pair. Key data due this
week is Nov GDP tonight. Consensus expects growth to pick pace to 0.3%m/m from
a flat growth in the month prior.

Asia ex Japan Currencies

The SGD NEER trades 1.69% below the implied mid-point
of 1.4028. The top end is estimated at 1.3743 and the floor at 1.4313.

USDSGD – Limited Downside. USDSGD briefly climbed to an
intraday high of 1.4286 before sliding lower towards the 1.4260-levels
currently on the back of dollar softness. Further downside could be limit given
that BOJ meeting and US GDP are just round the corner. Pair was last seen
around 1.4267 with daily MACD and stochastics still exhibiting bearish bias.
With risks still to the downside, further downmoves are likely to find support
nearby around the new weekly low of 1.4234 before the next at 1.4183 (50DMA).
Barrier is still at 1.4324-support turned resistance ahead of the next at
1.4368 (Oct 2015 high).

AUDSGD– Firm. AUD/SGD touched a high of 1.0148 before
retracing towards 1.0100 as we write in early Asia morning. This cross was
lifted by AUD strength and positive risk sentiments. MACD forest continues to
rise. Barrier at 1.0150 (50-DMA) had deterred bids. Next resistance is seen at
1.0188 (200-DMA). Support is seen around 1.0040.

SGDMYR – Where Next? SGDMYR fell to lows of 2.90-handle (levels not seen
since last Aug). Move came amid MYR outperformance. This is in line with our
call to stay short in the cross, looking for objective around 2.92 levels (200
DMA). Where then is the next level? We think the cross is still biased for
further downside – weekly and daily technicals remained aligned for further
downside. Next support at 2.90 levels (61.8% fibo retracement of the run up
from Aug low to Dec high) before 2.85 levels (76.4% fibo). Short-term
profit-take could see a pullback towards 2.95 levels (50% fibo). We maintain
our call for further downside.

USDMYR – More Downside to Come. USDMYR traded with a heavy bias amid a combination of
positive drivers including, gradually dissipating domestic issues, a positive recalibrated budget
(maintaining fiscal deficit at 3.1% of GDP), relative stability in oil prices
(which are helping to support sentiment), and to some extent, less impetus for
Fed to tighten. Weekly, daily momentum and stochastics are bearish bias. Near term
support at 4.20 has given way and has now turned resistance, before 4.22 (38.2%
fibo). Next support at 4.1420 (61.8% fibo retracement of the run-up from Jul
low to Sep high) before 4.0650 (200 DMA, 61.8% fibo).

1s USDKRW NDF – Tactical Sell on Rallies. 1s USDKRW closed largely unchanged overnight. Data
released this morning was mixed - Both Business survey mfg and non-mfg were a
touch weaker than previous month; while IP was better than expected. Pair was
last seen around 1209 levels. 4-hourly momentum remains biased for some
upside. Day ahead could see range of 1206 – 1215. We remain cautious if the
pair is overdone to the upside. Still suggesting a tactical sell on rallies
towards 1215 levels with a tight stop-loss at 1225, targeting objective at
1185.

USDCNH –Capped. USDCNH was little moved overnight and softer
dollar tones are likely to keep USDCNH capped. Resistance is seen at 6.6215.
Last seen around 6.6161, this pair has been showing little momentum. 6Pair
seems to be settling into 6.60-6.62 range for now. Gap with USDCNY has widened
to 400 pips at last sight. USD/CNY was fixed 12
pips lower at 6.5516 (vs. previous 6.5528).
CNY/MYR was fixed 103 pips lower at 0.6346 (vs. previous 0.6449). The RMB index based on
the basket of currencies was last at 100.84 as of 22 Jan, according to CFETS. PBOC
Zhengzhou training school Professor urged the central bank has to “pay
attention to yuan stability when managing liquidity”. In other news, China
plans to spend USD2.3trn on renewable energy over the next 5 years.

SGDCNY – Sideways.SGDCNY
tested the resistance at 4.6192 at one point before tapering off to close at
4.6090. Action is still trapped within the 4.5590-4.6200 range. Support is seen
at 4.5827 ahead of the 200-DMA at 4.5655. Momentum is mildly bullish and we see
upside risks. Eye the 4.6192 that has been a strong barrier for this cross
since last July. A break there opens the way towards the next at 4.6700.

1s USDINR NDF – Correction Ahead. This pair edged lower this morning, last
seen around 68.40. Support is seen around the 68-figure. Expect this pair
to remain within 67.60-68.60 today but risks are tilting lower as we note
bearish divergence in this pair. Pullbacks could bring this pair towards the 67.6565
(38.2% Fibonacci retracement of the Jan rally) and then towards 67-figure. We
see bearish divergence on the spot prices on the daily, weekly and monthly chart. Correction could thus be
sharp. Foreign
investors sold USD25.0mn of equities and bought USD6.5mn of debt on 27
Jan. At home, Finance Minister Jaitley has awarded 6800km of road project
tenders in the hope that these projects can boost the steel, cement and auto
sectors.

USDIDR – Mild Downside. USDIDR
is on the downswing this morning, helped by the softer dollar tone overnight.
Pair is currently seen around 13827 with daily technicals mildly bearish bias,
suggesting downside pressures on the pair in the near term. Still, with BOJ
policy decision and US GDP just round the corner, market cautiousness may reign
and limit downside moves intraday. Support is now seen around 13782 (year’s low
so far). Immediate barrier is seen around 13853 (50DMA) ahead of the next
around 13895 (100DMA). The JISDOR was fixed higher at 13889 yesterday from
13871 on Wed. Risk appetite again improved with foreign funds buying a net
USD0.63mn of equities yesterday. They however removed a net IDR0.35tn from
their outstanding holding of government debt on 27 Jan (latest data available).
In the news, it was reported that BI and Financial Services Authority (OJK) are
meeting President Jokowi to discuss interest rates and banking liquidity.
Moody’s affirmed Indonesia’s sovereign rating of Baa3 with a stable outlook
yesterday, underpinned by its strong balance sheet against the current backdrop
of widening fiscal deficits; and the effective management of risks (from lower
commodity prices and weaker growth) to ensure sustainability of its
external payments position.

USDPHP – Bearish Bias.
USDPHP gapped lower at the opening this morning to 47.675, playing catch-up
with its regional peers. Last seen around 47.720, pair has lost most of its
bullish momentum and stochastics is falling from overbought levels. However, market
cautiousness ahead BOJ meeting and US GDP later today could limit downsides.
Further slippages ahead should find support nearby around 47.548 (21DMA).
Resistance is at 47.840. Risk appetite continued to improve with foreign funds
buying a net USD16.35mn in equities yesterday. GDP rose at its fastest pace of
6.3% y/y in 4Q15 (3Q: 6.1%; cons.: 5.9%) on the back of strong private
consumption and investment spending (up 6.4% and 13.5% y/y respectively). For
the full-year, the economy expanded by 5.8% lower than 2014’s 6.1%, dragged
lower by weak external demand. Our economic team maintains its GDP growth
forecast of 7% for 2016 underpinned by election-related spending, front-loading
of government projects and continuing improvement in external demand.

USDTHB –Whippy.USDTHB is whippy this morning, pulled in
one direction by a softer dollar tone and the other by rising oil prices.
Moreover, there is also some market cautiousness ahead of the BOJ policy
decision and US GDP later today. Pair is currently oscillating within
35.780-35.860 with daily and weekly technicals. Though risks are to the
downside in the near term, pair is still trapped within an ichimoku cloud,
suggesting moves within range in the near term are likely. Support remains
around 35.718 (38.2% Fibo retracement of the Oct high to low). Immediate
resistance is still around 35.900
(50% Fibo) ahead of the next at 35.974 (top of the cloud). Investor sentiments were mixed
with foreign funds selling
a net THB3.91mn of equities and buying a net THB10.41bn of government debt yesterday. We have Dec mfg production; Dec BoP current
account balance; Dec trade; and 22 Jan foreign reserves on tap later this
afternoon.

Rates

Malaysia

The 20y MGII 10/35 re-tap auction saw a healthy bid/cover of 1.915x
with yield averaging 4.647%. In secondary, trading centered on the belly of the
MGS curve, with custodian banks seen buying on dips. 7y MGS benchmark ended
–3bps to 3.64%. MGII space was active at the front-end as 3y MGII 5/18 closed
-3bps with MYR822m done.

IRS levels marginally up by 1-2bps, with the 2y IRS being dealt at
3.65% and 3.66%. Market is still pricing in one rate cut. 3M KLIBOR unchanged
at 3.79%.

PDS market turned better bid as yields shifted lower, with volume
increasing significantly to MYR923m. The AAA space tightened 2-5bps at the
belly, with the most active ones being Telekom, KLCC, Rantau and Aman. The GG
space was relatively muted, with Prasarana’22 trading at 4.27% and JCORP’22 at
4.29%. G-spreads in the AAA space range 65-80bps, while z-spreads range
33-45bps. Relative to this, the GG space looks attractive, despite the rally,
given G-spreads of 60-69bps and z-spreads of 28-34bps.

Singapore

SGS saw strong demand at the belly, with the new 5y benchmark well
supported. However, long-dated bonds were better offered and yields rose 3-4bps
after the 10y point. Selling was also seen on short-dated bonds after the 6m
MAS bill auction cut-off at 1.2% with the 2y ending +4bps. SGD IRS was
aggressively paid up with the curve bear steepening; 10y +5bps and 2y +1bp.
Swap spreads widened sharply at the belly.

Asian credit space firmer with oil prices back up to around
USD32-33/bbl at the close. O&G names rallied 5-8bps, and so did Chinese
property names. DALWAN’24 eased 35-40bps to trade below the 500 handle again.
NOBLSP was up about 1.5pts on news of bond buybacks. Liquidity, however,
remains thin. INDON sovereigns continued to be strong, higher by 0.5-1pt across
the curve. In CNH space, buyers emerged at the short-end as CNH funding rates
have somewhat stabilized, but sellers still dominated the space.

Indonesia

Indonesia bond market continues booking gain as statement post FOMC
meeting was rather dovish. During the day, there were meeting between central
bank and government to discuss on rates. Thus, this became a positive sentiment
as bond investor may be assuming that there might an easing of Indonesia
monetary policy in the future. 5-yr, 10-yr, 15-yr and 20-yr benchmark series
yield stood at 8.237%, 8.372%, 8.721% and 8.715% while 2y yield shifts up to
8.145%. Trading volume at secondary market was seen thin at government segments
amounting Rp10,026 bn with FR0071 as the most tradable bond. FR0071 total
trading volume amounting Rp1,324 bn with 54x transaction frequency and closed
at 101.586 yielding 8.792%.

The Prime Minister yesterday presented a revised
fiscal budget for 2016 as it faced challenges of weak global growth,
pressure on the Ringgit, and slump in crude oil prices. The major feature
of the revised budget encompassing impact on revenue is assumption of
crude oil price (Brent) at $30-35 per barrel. However, the 2016 GDP
growth projection is brought down to a range of 4.0-4.5% from 4-5%
previously. The PM said the government will keep up with fiscal
consolidation measures for 2016, which is to hit its 3.1% of GDP fiscal
deficit target, adding that country's debt will be reduced and will
not exceed 55% of the GDP. The government will also maintain the 6% GST
rate.

We view the recent budget recalibration positively
as it tries to balance the need to tighten spending and still be able to
act counter-cyclically to prevent a sharper economic slowdown. The
government realistically assumes a bigger shortfall to incorporate the need
for relief measures for rakyat to support growth and did not again, for
second consecutive year, attempt to cut back devex as significantly as it
always did in the past whenever faced with an unexpected revenue shortfall
or increase in spending. The pro-growth measures support our economist’s
GDP growth projection of 4.6% this year.

We view the recalibrated Budget having little
impact on Ringgit bond market trading sentiment. Based on numbers
presented at the initial 2016 Budget presentation back in Oct last year,
the 3.1% deficit was equivalent to an overall deficit (revenue minus
expenditure) of RM38.8 billion. After the recalibrated budget
announcement, the deficit target is maintained at 3.1% though the
difference is the 2016 GDP target range has been cut to 4.0-4.5%. We
maintain our current estimated gross domestic government bond offerings of
RM87.0-87.5 billion in 2016, assuming little change in estimated
fiscal financing of up to RM38.8 billion and refinancing of RM48.1 billion
of maturing MGS and GIIs this year.

·The FED kept rates
unchanged as expected and its statement was slightly dovish, pushing rate
hike expectations towards next quarter. The govvies market opened with a
bullish tilt, especially on the GII space, with buying concentrated on the
7-10 yr bonds. There was also the 20Y GII reopening with RM2bio issued today
at a BTC of 1.915x; Hi 4.678; Lo 4.625; Avg 4.647. The BTC was well within
expectation, seeing strong interest from real money accounts in this bond as
its yield is still attractive at current levels. PM Najib also announced a
budget revision today to optimize the country’s expenditure in the face of a
slower economic growth. The revised budget will enable the government to save
RM9bil and maintain a fiscal deficit target at 3.1% of GDP. Post announcement,
MYR strengthen towards the 4.20 level. Bond yields remained largely unchanged
for the day as the market has somewhat priced in this budget revision
already.